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Facts
The assessee company Luxeva India Private Ltd. was subjected to a Complete Scrutiny Assessment under the e-Assessment Scheme, 2019. During the assessment year 2018-19, the company allotted shares at a premium. The Assessing Officer (AO) treated the excess premium as income from other sources under Section 56(2)(viib) of the Income Tax Act, 1961.
Held
The Tribunal held that Section 56(2)(viib) of the Income Tax Act is applicable to resident investors and not to non-resident investors, and the primary investments were made by a non-resident holding company. Therefore, the provisions of Section 56(2)(viib) were erroneously invoked. The addition made by the AO was deleted.
Key Issues
Whether the provisions of Section 56(2)(viib) of the Income Tax Act, 1961, are applicable to share premium received from non-resident investors. Whether the AO erred in not considering the returned business loss and unabsorbed depreciation.
Sections Cited
143(3), 56(2)(vii)(b), 56(2)(viib), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: E : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
Assessment Year: 2018-19 Luxeva India Private Ltd., Vs National e-Assessment Centre, 105/2, Sanghvi Property, Delhi. Sivajinagar S.O., Pune, Maharashtra – 411 005. PAN: AACCL7914K (Appellant) (Respondent) Assessee by : Ms Neha Vikram, CA & Ms Arvi Shah, CA Revenue by : Ms Amisha s. Gupt, CIT-DR Date of Hearing : 05.08.2025 Date of Pronouncement : 20.08.2025 ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 30.07.2024 of the Commissioner of Income-tax (Appeals), NFAC, Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.NFAC/2017-18/10008459 arising out of the appeal before it against the order dated 19.04.2021 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the National e-Assessment Centre, Delhi (hereinafter referred to as the Ld. AO).
On going through the assessment order it is noticed that the appellant is a company and filed its return of income for the AY 2018-19 declaring total income at Rs.Nil & current year loss of Rs. 11,80,83,348/-. The case was selected for Complete Scrutiny Assessment under the e-Assessment Scheme, 2019 to verify the issue of share premium & business loss. During the year under consideration, the appellant company allotted 1,98,885 shares (Face Value of Rs.10/- per share) which amounts to Rs.19,88,850/-. But the company raised share premium of Rs.13,96,79,002/-. The AO noted that this attracts the provisions of section 56(2)(vii)(b) of the Act and accordingly, the AO completed the assessment proceedings thereby making addition of Rs.13,76,90,152/- (Rs.13,96,79,002 - Rs.19,88,850) u/s 56(2)(vii)(b) of the Act. The relevant portion of the assessment order passed by the AO is reproduced here as under:- “3. During the Financial year 2017-18, the company has allotted 198885 shares (Face value of Rs.10/- per share) which amounts to Rs.19,88,850. But the company raised Premium reserve of Rs.13,96,79,002/-. The difference amounts to Rs.13,76,90,152/-. In the notice u/s 142(1) dated 26/03/21 it was show-caused why the excess amount in valuation of share (over and above the face value) should not be treated as income from other sources u/s 56(2)(viib) of the IT Act. As on date, there was no response from the assessee with regard to Shares allotted. 4. In this case, even after giving sufficient time to give explanation about share premium, as on date, assessee company neither submitted details nor responded to our notice. 5. In the light of the above, the premium share amount of Rs.13,76,90,152 is taxed u/s 56(2)(vii) of the Income Tax Act, 1961 for the assessment year 2018-19.”
During the appellate proceedings before the ld. CIT(A), the appellant furnished the copy of Financial Statements, Valuation Report from Chartered Accountant etc. Since these were additional documentary evidences, not furnished before the AO during the assessment proceedings, the same were forwarded to the AO with direction to verify these evidences & furnish his/her comments in the form of Remand Report. Accordingly, the AO verified all the documentary evidences and commented as under:-
1. 1. It is to be noted that at the time of assessment, assessee did not discharge its primary onus, accordingly addition has been made of Rs. 13,76,90,152/- U/s 56(2)(viib) of the Income Tax Act, 1961.
2. Further the valuation certificate submitted by assessee is from Chartered Accountant. However as per Rule 11UA certificate of Registered Merchant Banker only can be accepted for valuation as per DCF method. Thus the valuation certificate provided is not acceptable.
3. It is also to be noted that only specific exceptions as per Section 56(2)(viib) are: 1. Venture capital undertaking receiving consideration from venture capital company or fund.
2. Company from class/classes of persons as may be notified by the Central government in this behalf. Both these above exceptions does not apply to the assessee.
4. Further the source of share premium and also the source of source have not been verified. No bank statements, ITRs or confirmations have been submitted by the assessee. Thus since assessee failed to discharge its primary onus and could not submit and substantial supporting documents hence addition of Rs. 13,76,90,152 u/s 56{2)(vii) of the Act is justified.
In view of the above comments by impugned order ld. CIT(A), confirmed the addition of Rs. 13,76,90,152/- as income from other sources u/s 56(2)(vii)(b) of the Act.
On hearing both the sides, we find that primarily the investments are by the holding company which is a non-resident Indian. It is undisputed fact that the holding company shares has increased. On a reading of section 56(2)(viib) of the Act, it becomes very much clear that it is applicable to resident investors and not to non-residents. Reliance can be placed on co-ordinate bench decision in M/s.Planet Gogo Pvt. Ltd., Vs. ITO, Ward-3(2), Gurgaon order dated 24.02.23. Thus, the provisions of section 56(2)(vii)(b) of the Act have been erroneously invoked. Ground no. 1 to 3 are sustained. Impugned addition is deleted.
As with regard to ground No.4 with its sub-grounds, the issue is established that AO has failed to give note of returned business loss and grant set off of brought forward unabsorbed depreciation. The issue needs verification thus are restored to the files of the ld.AO to call for submissions of the assessee and decide afresh. Ground is allowed for statistical purposes.